TIDMHIK
RNS Number : 2208O
Hikma Pharmaceuticals Plc
17 August 2017
The information contained within this announcement is deemed by
the Company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014. Upon the publication of
this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public
domain.
PRESS RELEASE
Hikma delivers stable profitability and strong cash generation
in H1 and maintains a solid balance sheet
London, 17 August 2017 - Hikma Pharmaceuticals PLC (Hikma,
Group) (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY) (rated Ba1
Moody's / BB+ S&P, both stable) today reports its interim
results for the six months ended 30 June 2017.
H1 2017 highlights
Core(1) results Growth
----------------------- ---------- ---------------- ----------
Constant
H1 2017 currency H1 2016
$million $ $million
----------------------- ---------- ---------- ---- ----------
Core revenue 895 +5% +1% 882
----------------------- ---------- ---------- ---- ----------
Core operating profit 176 +3% - 176
----------------------- ---------- ---------- ---- ----------
Core EBITDA(2) 215 +5% +2% 211
----------------------- ---------- ---------- ---- ----------
Core basic earnings
per share (cents) 45.4 -3% -6% 48.2
----------------------- ---------- ---------- ---- ----------
Total results Growth
-------------------------- ---------- ----------------- ----------
Constant
H1 2017 currency H1 2016
$million $ $million
-------------------------- ---------- ---------- ----- ----------
Revenue 895 +5% +1% 882
-------------------------- ---------- ---------- ----- ----------
Operating profit 113 -2% -7% 121
-------------------------- ---------- ---------- ----- ----------
EBITDA 211 +12% +9% 194
-------------------------- ---------- ---------- ----- ----------
Basic earnings per share
(cents) 28.8 +15% +12% 25.7
-------------------------- ---------- ---------- ----- ----------
Financial highlights
-- Group revenue of $895 million, up 1% in H1 2017 and up 5% in
constant currency,(3) reflecting the consolidation of an additional
two months of West-Ward Columbus and continued Injectables growth,
partially offset by lower Branded revenue
-- Group core operating profit of $176 million, in line with H1
2016 and up 3% in constant currency, with a good improvement in
Generics profitability, offset by a weaker Branded performance
-- Group core basic earnings per share of 45.4 cents, down 6%
and down 3% in constant currency due to the issuance of 40 million
new shares to Boehringer Ingelheim in H1 2016 as part of the
consideration for the West-Ward Columbus acquisition
-- Group operating cash flow of $225 million, up from $99
million, reinforcing our strong balance sheet
-- Net debt reduced from $697 million to $633 million and healthy leverage ratios maintained
-- Interim dividend of 11.0 cents per share, in line with the interim dividend for H1 2016
-- We now expect 2017 Group revenue to be around $2.0 billion in
constant currency after lowering our guidance for the Generics
business. We now expect Generics revenue to be around $620 million
and core Generics operating profit to be around $30 million in
2017
Strategic highlights
-- Launched 75 products,(4) expanding and enhancing our global product portfolio
-- Invested 7% of Group revenue in R&D and product-related
investments, while enhancing the efficiency of our R&D
programmes
-- Expanded our licensing and distribution agreement with Takeda
Pharmaceutical Company Limited (Takeda), adding attractive branded
products to our MENA portfolio in strategic therapeutic
categories
-- Strengthened the management teams across our three businesses
to support stronger execution and future growth
-- Continuing constructive discussions with the US Food and Drug
Administration (FDA) to address the questions raised in the
complete response letter (CRL) received in respect of our generic
version of Advair Diskus(R) in May 2017
Said Darwazah, Chairman and Chief Executive Officer of Hikma,
said:
"The Group has delivered stable revenue and profitability in the
first half of 2017 in an increasingly challenging environment.
In the US, where competition is increasing and pricing pressure
is intensifying, sales in our Injectables business were resilient
and we maintained our track record of strong profitability. The
tougher market conditions did however continue to limit growth in
our Generics business. We remain focused on executing our Generics
strategy and we have strengthened the management team and further
restructured the cost base to provide a robust and efficient
platform to support pipeline execution and future growth. Whilst
Branded revenue declined in the first half, primarily as a result
of the devaluation of the Egyptian pound at the end of 2016 and
shipment delays during Ramadan and Eid, we remain confident that we
will deliver a much stronger performance in the second half of the
year.
Across the Group, we are taking actions to deliver value from
our marketed products, invest in our pipeline and enhance the
efficiency of our operations, to ensure we remain well positioned
for future growth."
Enquiries
Hikma Pharmaceuticals PLC
VP Corporate Strategy
and Director of Investor +44 (0)20 7399 2760/
Susan Ringdal Relations +44 7776 477050
Lucinda Deputy Director of +44 (0)20 7399 2765/
Baker Investor Relations +44 7818 060211
Virginia Investor Relations +44 (0)20 3892 4389/+44
Spring Manager 7973 679502
FTI Consulting
Ben Atwell/ Brett Pollard +44 (0)20 3727 1000
About Hikma
Hikma Pharmaceuticals PLC is a multinational pharmaceutical
group focused on developing, manufacturing and marketing a broad
range of both branded and non-branded generic and in-licensed
products. Hikma's operations are conducted through three
businesses: 'Injectables,' 'Generics' and 'Branded,' based
primarily in the Middle East and North Africa (MENA) region, where
it is a market leader, the United States and Europe. In 2016, Hikma
achieved revenues of $1,950 million and profit attributable to
shareholders of $155 million.
A presentation for analysts and investors will be held today at
09:30 UK time at FTI Consulting, 200 Aldersgate, Aldersgate Street,
London EC1A 4HD. To join via conference call please dial: +44 (0)
20 3003 2666 (standard international access) or 0808 109 0700 (UK
toll free) or +1 866 966 5335 (US toll free), Password: Hikma.
Alternatively you can listen live via our website at www.hikma.com.
A recording of both the meeting and the call will be available on
the Hikma website. The contents of the website do not form part of
this interim management report.
Business and financial review
The business and financial review set out below summarises the
performance of Hikma's three main business segments, Injectables,
Generics and Branded, for the six months ended 30 June 2017.
Within this interim management report, 'H1 2017' refers to the
six months ended 30 June 2017 and 'H1 2016' refers to the six
months ended 30 June 2016.
Group revenue by business segment
$ million H1 2017 H1 2016
------------- ---------- ----------
Injectables 362 40% 357 40%
------------- ---- ---- ---- ----
Generics 305 34% 257 30%
------------- ---- ---- ---- ----
Branded 223 25% 264 30%
------------- ---- ---- ---- ----
Others 5 1% 4 -
------------- ---- ---- ---- ----
Group revenue by region
$ million H1 2017 H1 2016
------------ ---------- ----------
US 586 65% 529 60%
------------ ---- ---- ---- ----
MENA 256 29% 304 34%
------------ ---- ---- ---- ----
Europe and
ROW 53 6% 49 6%
------------ ---- ---- ---- ----
Injectables
H1 2017 highlights:
-- Global Injectables revenue of $362 million, up 1% and up 3% in constant currency
-- Strong core operating margin of 39.8%, reflecting a
favourable product mix, efficient operations and good cost
control
-- Launched 17 products, including all dosage forms and strengths, across our markets
-- For the full year, we now expect Injectables revenue to be
slightly lower at around $775 million, reflecting increased market
competition. We anticipate maintaining a strong core operating
margin of around 39%
$ million H1 2017 H1 2016 Change Constant
currency
change
----------------------- -------- -------- ------- ----------
Revenue 362 357 +1% +3%
----------------------- -------- -------- ------- ----------
Gross profit 228 225 +1% +3%
----------------------- -------- -------- ------- ----------
Gross margin 63.0% 63.0% - -0.1pp
----------------------- -------- -------- ------- ----------
Core operating profit 144 146 -1% -%
----------------------- -------- -------- ------- ----------
Core operating margin 39.8% 40.9% -1.1pp -1.3pp
----------------------- -------- -------- ------- ----------
Injectables revenue by region
H1 2017 H1 2016
------------ ---------- ----------
US 283 78% 272 76%
------------ ---- ---- ---- ----
MENA 35 10% 43 12%
------------ ---- ---- ---- ----
Europe and
ROW 44 12% 42 12%
------------ ---- ---- ---- ----
Total 362 357
------------ ---- ---- ---- ----
In H1 2017, global Injectables revenue grew by 1% to $362
million and by 3% in constant currency.
Of this total, US Injectables revenue was $283 million, up 4%
from $272 million in H1 2016. Good demand across our broad
portfolio, including recent product launches, more than offset the
impact of price erosion. We expect US Injectables sales to remain
resilient in the second half, albeit growth will be slightly below
our initial expectations at the start of the year. Stronger sales
of certain marketed products and new product launches should more
than compensate for lower sales of key products with new market
entrants.
MENA Injectables revenue was $35 million, down 19% from H1 2016
and down 5% in constant currency. This reflects challenging market
conditions in Algeria and the GCC in H1 2017, supply disruptions
for a key in-licensed product and reduced shipments in June due to
Ramadan and Eid. We have lowered our full year 2017 revenue
expectations for the MENA Injectables business to reflect some of
the challenges that we have seen this year but we still expect to
achieve good full year growth over 2016. In particular, we expect a
strong acceleration in the shipment of sales, recent product
launches and continued strong oncology sales to drive strong growth
in H2 2017.
European Injectables revenue was $44 million in H1 2017, an
increase of 5% on a reported basis and 7% in constant currency.
Growth was driven by good demand for our marketed products and
contract manufacturing services.
Injectables gross profit was $228 million in H1 2017, compared
with $225 million in H1 2016. Gross margin was 63.0%, in line with
H1 2016. The continued strength of the gross margin reflects a
favourable product mix in the US and the efficiency of our
manufacturing operations.
Core operating profit, which excludes the amortisation of
intangible assets other than software of $10 million, was $144
million in H1 2017, compared with $146 million in H1 2016. Core
operating margin was 39.8%, compared with 40.9% in H1 2016,
reflecting the strong gross margin and good control of operating
costs.
During H1 2017, the Injectables business launched 17 products,
including all dosage forms and strengths, across all markets. The
Injectables business also received a total of 90 regulatory
approvals across all markets, 24 in MENA, 54 in Europe and 12 in
the US.
For the full year in 2017, we now expect Injectables revenue to
be slightly lower at around $775 million, as a result of increased
competition on certain products in the US market during H2 2017 and
lower than expected revenue growth in the MENA. We expect a strong
core operating margin of around 39%, reflecting a favourable
product mix in the US and good control of costs.
Generics
H1 2017 highlights:
-- Generics revenue of $305 million, compared with $257 million
in H1 2016, reflecting the consolidation of an additional two
months of the West-Ward Columbus business
-- Generics core operating profit of $21 million, up from $8 million
-- Core operating margin of 6.9%, up from 3.1%
-- We now expect full year revenue of around $620 million in
2017, reflecting the impact of increased competition on prices and
volumes. We expect core operating profit of around $30 million for
the full year
-- Continuing constructive discussions with the US Food and Drug
Administration (FDA) to address the questions raised in the
complete response letter (CRL) received in respect of our generic
version of Advair Diskus(R) in May 2017
$ million H1 2017 H1 2016 Change
----------------------- -------- -------- --------
Revenue 305 257 +19%
----------------------- -------- -------- --------
Gross profit 119 65 +83%
----------------------- -------- -------- --------
Gross margin 39.0% 25.3% +13.7pp
----------------------- -------- -------- --------
Core operating profit 21 8 +163%
----------------------- -------- -------- --------
Core operating margin 6.9% 3.1% +3.8pp
----------------------- -------- -------- --------
In H1 2017, Generics revenue increased from $257 million to $305
million, reflecting the consolidation of an additional two months
of the West-Ward Columbus business. Revenue growth was limited by
the impact of increased competition on pricing and volumes,
rationalisation of our product portfolio and a reduction in
contract manufacturing revenue. We expect the tougher market
conditions to remain in H2 2017, with continued price and volume
erosion on our marketed portfolio. We expect to more than offset
this impact through increased demand for certain products, further
portfolio optimisation and a small number of new product
launches.
Generics gross profit was $119 million in H1 2017, compared with
$65 million in H1 2016. Excluding the impact of severance costs
related to the West-Ward Columbus acquisition, core gross profit
was $121 million, up from $89 million, due to the consolidation of
an additional two months of West-Ward Columbus. Gross margin was
39.0%, and core gross margin was 39.7%, compared with 34.6% in H1
2016, reflecting an improvement in the mix of sales as we focus on
portfolio optimisation. We also achieved good overhead savings in
H1 2017 which more than offset the additional operational costs
associated with the development of our generic version of Advair
Diskus(R).
Core Generics operating profit was $21 million in H1 2017,
compared with $8 million in H1 2016. Core operating margin was
6.9%, up from 3.1% in H1 2016. The improvement in profitability
reflects the increase in gross profit. As part of the integration
process for West-Ward Columbus, we have significantly strengthened
the management team for the Generics business during 2017,
appointing new function heads across the business to better enable
the execution of our growth strategy.
The Generics business reported an operating loss of $28 million
in H1 2017 after the amortisation of intangible assets of $11
million and exceptional items of $38 million. The exceptional items
relate to the impairment of product-related investments, primarily
within the West-Ward Columbus pipeline, of $34 million due to a
change in the expected market opportunity of certain products and
severance costs in connection with the acquisition of $4
million.
During H1 2017, the Generics business launched 7 products,
including all dosage forms and strengths, and received 14 product
approvals.
We announced on 11 May 2017 that the US Food and Drug
Administration (FDA) had issued a complete response letter (CRL) in
relation to our abbreviated new drug application (ANDA) for our
generic version of GlaxoSmithKline's Advair Diskus(R) (fluticasone
propionate and salmeterol inhalation powder). Since then we,
supported by our partner Vectura, have had constructive discussions
with the FDA and we have been able to clarify and resolve a number
of the questions raised. The discussions with the FDA have
confirmed our initial assessment that there are no material issues
regarding the substitutability of the proposed device. We are in
ongoing discussions with the FDA to address the remaining questions
and will provide a more detailed update to the market as soon as we
are able to do so.
We now expect Generics revenue to be around $620 million for the
full year, reflecting the impact of increased competition on prices
and volumes. Through our focus on portfolio optimisation and
continued cost savings, we expect the Generics business to achieve
core operating profit of around $30 million in 2017.
Branded
H1 2017 highlights:
-- Branded revenue of $223 million, down 16% and down 6% in
constant currency, reflecting the timing of Ramadan and Eid and
challenging operating conditions in certain markets
-- Branded core operating profit of $41 million, down 25% and
down 16% in constant currency, due to the decline in revenue,
partially offset by a reduction in operating expenses
-- Branded core operating margin was 18.4% and was 18.5% in constant currency
-- Expanded our existing licensing and distribution agreement
with Takeda, adding attractive branded products in strategic
therapeutic areas
-- Continue to expect Branded revenue growth in the mid-single
digits in constant currency in 2017, reflecting the timing of sales
and new product launches. We now expect reported revenue and
reported core operating profit to be broadly in line with 2016
$ million H1 2017 H1 2016 Change Constant
currency
change
----------------------- -------- -------- ------- ----------
Revenue 223 264 -16% -6%
----------------------- -------- -------- ------- ----------
Gross profit 105 134 -22% -12%
----------------------- -------- -------- ------- ----------
Gross margin 47.1% 50.8% -3.7pp -3.4pp
----------------------- -------- -------- ------- ----------
Core operating profit 41 55 -25% -16%
----------------------- -------- -------- ------- ----------
Core operating margin 18.4% 20.8% -2.4pp -2.3pp
----------------------- -------- -------- ------- ----------
Branded revenue decreased by 6% in H1 2017, before the impact of
adverse movements in the Egyptian pound, Sudanese pound, Tunisian
dinar, Algerian dinar and Moroccan dirham against the US dollar.
The revenue decline reflects the timing of Ramadan and Eid in the
first half of 2017 and more challenging operating conditions in
certain markets, primarily due to increased importation
restrictions and economic uncertainty. These impacts more than
offset a stronger performance in other markets. We expect the
seasonality of sales and new product launches to drive good Branded
revenue growth in H2 2017.
On a reported basis, Branded revenue decreased by 16% to $223
million, compared with $264 million in H1 2016. The significant
currency impact was primarily due to the devaluation of the
Egyptian pound following the flotation of the currency in November
2016.(5)
During H1 2017, the Branded business launched a total of 51
products including dosage forms and strengths, across all markets.
The Branded business also received 69 regulatory approvals across
the region.
Revenue from in-licensed products represented 40% of Branded
revenue, compared with 38% in H1 2016. We launched 14 new
in-licensed products, including all dosage forms and strengths,
across all markets. These products help to strengthen our portfolio
in strategic therapeutic categories, including cardiovascular and
central nervous system.
In H1 2017, we expanded our licensing and distribution agreement
with Takeda to add attractive branded products to our MENA
portfolio. The agreement builds on our long-standing partnership
with Takeda and enables us to expand our portfolio in key
therapeutic areas, including cardiovascular, diabetes and
gastroenterology. Under the agreement, Hikma has the exclusive
rights to manufacture and commercialise three of Takeda's leading
primary care product families - Vipedia(TM) (alogliptin)
(anti-diabetic), Edarbi(TM) (azilsartan) (anti-hypertensive) and
Xefo(TM) (lornoxicam) (pain/ anti-inflammatory) - in the MENA.(6)
It also gives us the exclusive rights to manufacture and
commercialise Dexilant(TM) (dexlansoprozole) (gastric acid
secretion inhibitor) in the MENA(7) and to expand our existing
license agreement for Xefo(TM) (lornoxicam) tablets beyond Saudi
Arabia and Jordan to cover our other MENA markets.
On a reported basis, Branded gross profit decreased by 22% to
$105 million in H1 2017 and gross margin was 47.1%, compared with
50.8% in H1 2016. In constant currency, gross profit decreased by
12% to $118 million and gross margin was 47.4%, reflecting a change
in the product mix, with stable overhead costs.
Core operating profit, which excludes the amortisation of
intangibles of $4 million, decreased by 25% to $41 million and core
operating margin was 18.4%, down from 20.8% in H1 2016. In constant
currency, core operating profit decreased by 16% to $46 million and
core operating margin was 18.5% compared with 20.8% in H1 2016. The
decline in operating profit reflects the lower revenue, partially
offset by a reduction in operating expenses as a result of good
cost control.
We continue to expect Branded revenue growth in the mid-single
digits in constant currency for the full year in 2017, reflecting
the timing of sales and new product launches. We now expect
reported revenue and reported core operating profit to be broadly
in line with 2016.
Other businesses
Other businesses, which primarily comprise Arab Medical
Containers, a manufacturer of plastic specialised medicinal sterile
containers, International Pharmaceuticals Research Centre, which
conducts bio-equivalency studies, and the API manufacturing
division of Hikma Pharmaceuticals Limited Jordan, contributed
revenue of $5 million in H1 2017, in line with H1 2016. These other
businesses had an operating loss of $1 million in H1 2017 and were
breakeven in H1 2016.
Group
Group revenue grew by 1% in H1 2017 to $895 million and 5% in
constant currency. Group gross profit was $454 million and core
gross profit was $456 million, compared with $449 million in H1
2016. Group gross margin was 50.7% and core gross margin was 50.9%,
in line with H1 2016.
Group operating expenses were $341 million, compared with $304
million in H1 2016. Excluding the amortisation of intangible assets
other than software of $24 million and exceptional items of $39
million, core Group operating expenses were $280 million, an
increase of 3%. Exceptional items included within operating
expenses in H1 2017 comprised the impairment of product-related
intangibles of $35 million and severance costs of $4 million,
compared with exceptional items of $17 million in H1 2016.(8) The
paragraphs below address the Group's main operating expenses in
turn.
Sales and marketing expenses were $117 million compared with
$106 million H1 2016. Excluding the amortisation of intangible
assets of $24 million and severance costs of $1 million, sales and
marketing expenses were $92 million, or 10% of revenue compared
with $88 million, or 10% of revenue in H1 2016. The increase of $4
million was primarily due to the consolidation of an additional two
months of the West-Ward Columbus business, partially offset by
lower sales and marketing costs in the Branded business.
General and administrative expenses were $107 million in H1
2017, compared with $130 million in H1 2016. Excluding exceptional
items, G&A expenses were $106 million compared with $95 million
in H1 2016, or 12% of revenue compared with 11%, primarily due to
the consolidation of an additional two months of West-Ward Columbus
expenses.
R&D expense was $63 million in H1 2017. Excluding
exceptional items, core R&D expense was $60 million compared
with $57 million in H1 2016. The combined R&D expense and
product-related investment for the Group was $65 million (7% of
Group revenue) compared with $69 million (8% of Group revenue) in
H1 2016. During the period we have identified opportunities for
cost savings and efficiencies, particularly in our Generics
business and we now expect Group R&D expense to be around $140
million for the full year in 2017.
Other net operating expenses were $54 million in H1 2017.
Excluding exceptional items of $32 million, related to the
impairment of product-related intangible assets within the Generics
business, net operating expenses were $22 million compared with $33
million in H1 2016. This decrease is primarily due to foreign
exchange gains and lower inventory provisions in the US.
Group operating profit was $113 million in H1 2017. Excluding
the impact of amortisation and exceptional items, core Group
operating profit was $176 million and core operating margin was
19.7%, compared with $176 million and 20.0% in H1 2016. This
reflects the consolidation of an additional two months of West-Ward
Columbus in H1 2017, offset by the lower profitability of the
Branded business.
Research & Development(9)
The Group's product portfolio continues to grow as a result of
our product development efforts. During H1 2017, we launched 75 new
products, including all dosage forms and strengths and the Group's
portfolio now stands at 2,660 products. In addition, the Group
received 173 approvals.
To ensure the continuous development of our product pipeline, we
submitted 87 regulatory filings in H1 2017 across all markets. As
of 30 June 2017, we had a total of 767 pending approvals across all
markets. At 30 June 2017, we had a total of 374 new products under
development.
Marketed products Products launched Products approved Products pending
in H1 2017, in H1 2017, in H1 2017, approval,
including including including including
all dosage all dosage all dosage all dosage
forms and forms and forms and forms and
strengths, strengths, strengths, strengths,
across all across all across all across all
markets markets markets markets as
at 30 June
2017
------------- ------------------ ------------------ ------------------ -----------------
Injectables 791 17 90 447
------------- ------------------ ------------------ ------------------ -----------------
Generics 348 7 14 55
------------- ------------------ ------------------ ------------------ -----------------
Branded 1,521 51 69 265
------------- ------------------ ------------------ ------------------ -----------------
Group 2,660 75 173 767
------------- ------------------ ------------------ ------------------ -----------------
Net finance expense
In H1 2017, net finance expense was $13 million. Excluding the
net non-cash income of $15 million, primarily resulting from the
remeasurement of the contingent consideration payable to Boehringer
Ingelheim as part of the West-Ward Columbus acquisition, net
finance expense was $28 million, compared with $29 million in H1
2016. For the full year in 2017, we continue to expect Group net
finance expense to be around $60 million. In addition, we now
expect a net non-cash expense of $1 million related to the
remeasurement of the contingent consideration for the full year in
2017.
Profit before tax
Profit before tax for the Group was $100 million in H1 2017, up
from $83 million in H1 2016. Core profit before tax was $148
million, compared with $147 million in H1 2016.
Tax
The Group incurred a tax expense of $30 million, compared with
$24 million in H1 2016. Excluding the tax impact of exceptional
items, core Group tax expense was $38 million in H1 2017, compared
with $37 million in H1 2016. The core effective tax rate was 25.7%,
compared with 25.2% in H1 2016. We continue to expect the core
effective tax rate for the full year in 2017 to be around 26%.
Profit attributable to shareholders
Profit attributable to shareholders increased by 19% to $69
million, compared with $58 million in H1 2016. Core profit
attributable to shareholders was $109 million, in line with H1
2016.
Earnings per share
Basic earnings per share increased by 12% to 28.8 cents in H1
2017, compared to 25.7 cents in H1 2016. Core basic earnings per
share decreased by 6% to 45.4 cents, compared with 48.2 cents in H1
2016. Core diluted earnings per share decreased by 5% to 45.2
cents, compared with 47.8 cents in H1 2016. Earnings per share was
impacted by the issuance of 40 million new shares to Boeringher
Ingelheim on 29 February 2016 as part of the consideration for the
West-Ward Columbus acquisition, which impacted the weighted average
number of shares.
Dividend
The Board has declared an interim dividend of 11.0 cents per
share (approximately 8.5 pence per share) for H1 2017, in line with
the interim dividend of 11.0 cents per share in H1 2016. The
interim dividend will be paid on 22 September 2017 to eligible
shareholders on the register at the close of business on 25 August
2017. The ex-dividend date is 24 August 2017 and the final date for
currency elections is 8 September 2017.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $225 million in H1
2017. Excluding the acquisition and integration costs related to
the West-Ward Columbus acquisition of $35 million, this compared to
Group operating cash flow of $134 million in H1 2016. This
significant increase in cash flow generation in H1 2017 primarily
reflects the investment we made in the working capital of the
West-Ward Columbus business following the acquisition in February
2016. Group working capital days were 230 days at June 2017, up
from 211 days at June 2016.(10) This was principally due to an
increase in inventory days in the US, which was partially offset by
an associated increase in payable days.
Capital expenditure was $47 million, compared with $55 million
in H1 2016. Of this, around $28 million was spent in the US to
expand the manufacturing capacity and capabilities of our
Injectables and Generics businesses. In MENA, around $11 million
was spent to maintain our equipment and facilities across a number
of markets. The remaining $8 million was spent in Europe, expanding
our Injectables manufacturing capacity for lyophilised and oncology
products. We now expect Group capital expenditure to be around $125
million for the full year in 2017.
The Group's net debt(11) (excluding co-development agreements
and contingent consideration and liabilities) stood at $633 million
at the end of June 2017, compared with $697 million at the end of
December 2016. The reduction reflects the paydown of debt during
the period. We continue to have a strong a balance sheet, with a
net debt to EBITDA ratio of 1.3 times at June 2017.
Balance sheet
Net assets at 30 June 2017 totalled $2,452 million, compared to
$2,411 million at 31 December 2016. Net current assets were $694
million, compared to $530 million at 31 December 2016.
During the period, shareholder equity was positively impacted by
an unrealised foreign exchange translation gain of $19 million,
primarily reflecting movements in the Euro, Algerian dinar and
Moroccan dirham against the US dollar and the translation of net
assets denominated in these currencies.
Summary and outlook
The Group delivered stable revenue and profitability in H1 2017
in a challenging environment.
We now expect Injectables revenue to be around $775 million in
2017, as a result of increased competition on certain products in
the US market during H2 2017 and lower than expected revenue growth
in the MENA. We expect core operating margin to be around 39%,
reflecting a favourable product mix in the US and good control of
costs.
For the full year, we now expect Generics revenue to be around
$620 million, reflecting the impact of increased competition on
prices and volumes. Through our focus on portfolio optimisation and
continued cost savings, we expect core operating profit of the
Generics business in 2017 to be around $30 million.
We continue to expect Branded revenue growth in the mid-single
digits in constant currency in 2017, reflecting the timing of sales
and new product launches in the second half of the year. Reported
revenue and core operating profit are expected to be broadly in
line with 2016.
We expect full year Group revenue to be around $2.0 billion in
constant currency. Across the Group, we are taking actions to
deliver value from our marketed products, invest in our pipeline
and enhance the efficiency of our operations, to ensure we are well
positioned for future growth.
Constant currency
Constant currency numbers in H1 2017 represent reported H1 2017
numbers re-stated using average exchange rates in H1 2016. A
summary of the exchange rates used is provided in the table
below.
Period end rates(12) Average rates(12)
------------------ ----------------------- --------------------
30 June 30 June H1 2017 H1 2016
2017 2016
------------------ ----------- ---------- --------- ---------
USD/ Algerian
dinar 107.8716 110.3681 109.535 108.0838
------------------ ----------- ---------- --------- ---------
USD/ British
pound 0.7672 0.7467 0.7935 0.6976
------------------ ----------- ---------- --------- ---------
USD/ Egyptian
pound 18.1488 8.8810 17.9856 8.4602
------------------ ----------- ---------- --------- ---------
USD/ EUR 0.8749 0.9005 0.9228 0.8955
------------------ ----------- ---------- --------- ---------
USD/ Japanese
yen 112.4800 103.1779 112.4076 111.4201
------------------ ----------- ---------- --------- ---------
USD/ Jordanian
dinar 0.7090 0.7090 0.7090 0.7090
------------------ ----------- ---------- --------- ---------
USD/ Moroccan
dirham 9.6464 9.7393 9.8814 9.7860
------------------ ----------- ---------- --------- ---------
USD/ Saudi riyal 3.7495 3.7495 3.7495 3.7495
------------------ ----------- ---------- --------- ---------
USD/ Sudanese
pound 16.5563 11.2740 15.8479 11.2740
------------------ ----------- ---------- --------- ---------
USD/ Tunisian
dinar 2.4588 2.1925 2.3646 2.0530
------------------ ----------- ---------- --------- ---------
Going concern statement
As set out in note 2 to the financial statements, the Directors
considered it appropriate to prepare the financial statements on
the going concern basis as explained in the basis of
preparation.
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge:
a) The consolidated financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting', as adopted by
the European Union and as issued by the International Accounting
Standards Board, gives a true and fair view of the assets and
liabilities, financial position and profit or loss of the issuer,
or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R;
b) The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months including their impact on the condensed
financial statements and description of principal risks and
uncertainties for the remaining six months of the year);
c) The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes from the last Annual Report which have had
or could have a material financial effect on the financial position
of the Group during the period); and
d) The directors of the Company are listed in the Hikma
Pharmaceuticals PLC Annual Report for 31 December 2016.
Subsequently, Michael Ashton retired on 19 May 2017. A list of
current directors is maintained on the Hikma Pharmaceuticals PLC
website: www.hikma.com
By order of the Board
Said Darwazah Khalid Nabilsi
Chief Executive Officer Chief Financial Officer
16 August 2017
Cautionary statement
This interim management report has been prepared solely to
provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. It should not be relied on by any other party or for any
other purpose.
Forward looking statements
This announcement may contain statements which are, or may be
deemed to be, "forward looking statements" which are prospective in
nature. All statements other than statements of historical fact may
be forward-looking statements. Often, but not always,
forward-looking statements can be identified by the use of forward
looking words such as "intends", "believes", "anticipates",
"expects", "estimates", "forecasts", "targets", "aims", "budget",
"scheduled" or words or terms of similar substance or the negative
thereof, as well as variations of such words and phrases or
statements that certain actions, events or results "may", "could",
"should", "would", "might" or "will" be taken, occur or be
achieved.
Where included, such statements have been made by Hikma in good
faith based on the information available to it up to the time of
the approval of this announcement. By their nature, forward looking
statements are based on current expectations, assumptions and
projections about future events and therefore involve inherent
risks and uncertainties that could cause actual results or events
to differ materially from those expressed or implied by the
forward-looking statements, and should be treated with caution.
These risks, uncertainties or assumptions could adversely affect
the outcome and financial effects of the plans and events described
in this announcement. Forward looking statements contained in this
announcement regarding past trends or activities should not be
taken as a representation that such trends or activities will
continue in the future and a variety of factors, many of which are
beyond Hikma's control, could cause actual results to differ
materially from those projected or implied in any forward-looking
statements. You should not place undue reliance on forward-looking
statements, which speak as only of the date of the approval of this
announcement.
Except as required by law, Hikma is under no obligation to
update or keep current the forward looking statements contained in
this announcement or to correct any inaccuracies which may become
apparent in such forward looking statements. Except as expressly
provided in this announcement, no forward looking or other
statements have been reviewed by the auditors of Hikma. All
subsequent oral or written forward looking statements attributable
to the Hikma or any of its members, directors, officers or
employees or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statement above.
Principal risks and uncertainties
As part of Hikma's Enterprise Risk Management Framework, the
Board conducted a detailed review of all of the existing and
emerging principal risks in the businesses during 2016 and detailed
these principal risks on pages 54 to 57 of the Annual Report of
Hikma Pharmaceuticals PLC for the year ended 31 December 2016. The
Board has reviewed those principal risks and uncertainties and
concluded that no substantial changes need to be made. It is not
anticipated that the nature of the principal risks and
uncertainties will change in the second six months of this
financial year.
In summary, the principal risks and uncertainties affecting the
Group are those described in the table below.
Risk and description Mitigation and control
------------------------------------------------------------------ ------------------------------------------------------------
Product quality
--------------------------------------------------------------------------------------------------------------------------------
* Situations resulting in poor manufacturing and * Global implementation of quality systems that
processes quality of products have the potential to guarantee valid consistent manufacturing processes
lead to: leading to the production of quality products
* Product efficacy and safety issues affecting patients * The 11 FDA approved facilities are regularly assessed
and manufacturing personnel resulting in liability by the regulator
and reputational issues
* Documented procedures are continuously improved and
* Regulatory action that could result in the closure of staff receive training on those procedures on a
facilities and consequential loss of opportunity and regular basis
potential failure to supply obligations
* Continued environment and health certifications
* Delayed or denied approvals for new products
* Implementation of Quality Risk Management practices
* Product recalls to assess manufacturing sites and processes
------------------------------------------------------------------ ------------------------------------------------------------
API sourcing
--------------------------------------------------------------------------------------------------------------------------------
* API and raw materials represent one of the Group's * Maintaining alternative API suppliers for each of the
largest cost components. As is typical in the Group's strategic products, where possible
pharmaceuticals industry, a significant proportion of
the Group's API requirements is provided by a small
number of API suppliers * API suppliers are carefully selected and the Group
endeavours to build long-term supply contracts
* There is a risk that it will not be possible to
secure or maintain adequate levels of API supplies in * The Group has a dedicated plant in Jordan that can
future synthesise strategic injectable APIs and difficult to
procure injectable APIs where appropriate
* Regulatory approval of a new supplier can be lengthy
and supplies may be disrupted if the Group is forced * Utilising supply chain models to maintain adequate
to replace a supplier which failed to meet applicable API levels
regulatory standards or terminated its arrangements
with the Group
------------------------------------------------------------------ ------------------------------------------------------------
MENA & emerging markets
--------------------------------------------------------------------------------------------------------------------------------
* Hikma operates in the MENA and emerging markets which * Geographic diversity reduces the impact of issues
have high levels of political and social instability arising in one jurisdiction with extensive experience
as well as economic and regulatory fluctuations that of operating in these environments and developing
can result in a wide variety of business disruptions opportunities
in those markets for a substantial period of time
* Strong regulatory team that proactively monitors
possible regulatory changes
* Building and nurturing local business relationships
whilst upholding the highest ethical standards
* Monitoring, analysing and reacting to economic
developments, on short, medium and long term bases
------------------------------------------------------------------ ------------------------------------------------------------
New product pipeline
--------------------------------------------------------------------------------------------------------------------------------
* A sizeable proportion of Group revenue and profits * Internal marketing and business development
derive from a number of strategic products. Failure departments monitor and assess the market for arising
to maintain a healthy product pipeline will affect opportunities
the ability of the Group to generate business and
limits the ability to provide differentiated products
to patients and customers * Expansive global product portfolio with increased
focus on high value and differentiated products
* Experienced internal regulatory teams developing
products and overseeing joint venture activities
* Product related acquisitions (e.g. acquisition of
West-Ward Columbus)
* Third party pharmaceutical product specialists in
addition to strong internal R&D teams are assisting
in the development of manufacturing processes for new
generic products. Both are assisted centrally in the
implementation and management of projects
* Launched a product portfolio/pipeline management
platform and project management office with improved
alignment across the Group
* Defined and reviewed clear product strategies that
set product development priorities
* Strengthened pipeline management through appointment
of experienced and talented individuals within the
R&D team
------------------------------------------------------------------ ------------------------------------------------------------
Industry earnings
--------------------------------------------------------------------------------------------------------------------------------
* The dynamics of the generic pharmaceutical industry * Operating in wide range of countries, products and
includes numerous volatile elements such as therapeutic areas
regulatory interventions, drug approval patterns,
competitor strategies and pricing that are difficult
to anticipate and may affect profitability * Diversification of manufacturing capability and
capacity
* Active product life cycle and pricing management in
the MENA region
* Compliantly identify market opportunities and develop
appropriate pricing strategies whilst responsibly
applying price changes in the US
* Alignment with product development teams to ensure
sustained new product introductions across markets to
capture opportunities
------------------------------------------------------------------ ------------------------------------------------------------
Acquisitions
--------------------------------------------------------------------------------------------------------------------------------
* The Group strategy is to pursue value adding * The mergers and acquisitions team undertake extensive
acquisitions to expand the product portfolio, acquire due diligence of each acquisition, including legal,
manufacturing capabilities and expand in existing and financial, compliance and commercial, and utilise
emerging markets. There is risk of misjudging key multiple valuation approaches in assessing target
elements of an acquisition or failing to integrate acquisition value
the assets, particularly where they are distressed
* Executive Committee reviews major acquisitions before
* An acquisition of a large-scale target may entail they are considered by the Board
financing-related risks and operating expenses and
significantly increase the Group's leverage if
financed with debt * The Board is willing and has demonstrated its ability
to refuse acquisitions where it considers the price
or risk is too high
* Dedicated integration project teams are assigned for
the acquisition, which are led by the business head
responsible for proposing the opportunity. Following
the acquisition of a target, the finance team, the
management team and the Audit Committee closely
monitor its financial and non-financial performance
------------------------------------------------------------------ ------------------------------------------------------------
Anti-Bribery and Corruption (ABC) Compliance
--------------------------------------------------------------------------------------------------------------------------------
* The pharmaceutical industry and certain MENA and * Board level - Compliance, Responsibility and Ethics
emerging markets are considered to be higher risk in Committee (CREC)
relation to sales practices. Improper conduct by
employees could seriously damage the reputation and
licence to do business * Code of Conduct approved by the Board, translated
into seven languages and signed by all employees
* ABC compliance programme monitored by the CREC
* Sustained ABC compliance training delivered to
employees strengthened by the introduction of on-line
training programs
* Sales and marketing and other ABC compliance policies
and procedures are created, updated and rolled out
and are subject to regular audits
* Active participation in international anti-corruption
initiatives (e.g. PACI, UN Global Compact)
* Strengthening US compliance operations in line with
business expansion
* Conducting legally privileged internal compliance
audits
* Third parties undergo ABC due diligence prior to
engagement
------------------------------------------------------------------ ------------------------------------------------------------
Financial
--------------------------------------------------------------------------------------------------------------------------------
* The Group is exposed to a variety of financial risks * Extensive financial control procedures have been
similar to most major international manufacturers implemented and are assessed annually as part of the
such as liquidity, exchange rates, tax uncertainty internal audit programme
and debtor default. In addition, most of the other
risks could have a financial impact on the Group,
including risks related to pipeline, goodwill, etc. * A network of banking partners is maintained for
lending and deposits
* Management monitors debtor payments and takes
precautionary measures where necessary
* Where it is economic and possible to do so, the Group
hedges its exchange rate and interest rate exposure
* Management obtains external advice to help manage tax
exposures and has upgraded internal tax control
systems
* Continuous review and oversight of the Group's
business plan
------------------------------------------------------------------ ------------------------------------------------------------
Legal, intellectual property and regulatory
--------------------------------------------------------------------------------------------------------------------------------
* The Group is exposed to a variety of legal, IP and * Expert internal departments that enhance policies,
regulatory risks similar to most relevant major processes, embed compliance culture, raise awareness
international industries such as changes in laws,
regulations and their application, litigation,
governmental investigations, sanctions, contractual * Train staff and provide terms to mitigate or lower
terms and conditions and potential business contractual risks where possible
disruptions
* First class expert external advice is procured to
provide independent services and ensure highest
standards
* Board of Directors and executive management provide
leadership and take action
------------------------------------------------------------------ ------------------------------------------------------------
Information technology
--------------------------------------------------------------------------------------------------------------------------------
* If information and data are not adequately secured * Utilise appropriate levels of industry-standard
and protected (data security, access controls), this information security solutions for critical systems
could result in:
* Continue to stay abreast of cyber-risk activity and,
* Increased internal/ external security threats where necessary, implement changes to combat this
* Compliance and reputational damages * Improved alignment between IT and business strategy
* Regulatory and legal litigation * Working with third party consultants on implementing
a robust Group-wide information security programme
* Development of a Group-wide information security
policy
* Strengthening global IT department through
appointment of experienced talent
------------------------------------------------------------------ ------------------------------------------------------------
Human Resources and Organisational growth
--------------------------------------------------------------------------------------------------------------------------------
* Changes in employment laws, currency fluctuations and * Employ HR programmes that attract, manage and develop
inflation pose constant risks. The fast growth of the talent within the organisation
organisation poses risks to management processes,
structures and talent that serve the changing needs
of the organisation. In turn, this may affect other * Keeping our organisation structures and
risks accountabilities under review, and maintaining the
flexibility to make changes smoothly as requirements
change
* Continuously upgrade management processes and
structures so that they become and remain at the
standards of a global company
------------------------------------------------------------------ ------------------------------------------------------------
Reputational
--------------------------------------------------------------------------------------------------------------------------------
* Reputational risk inescapably arises as a by-product * Monitor the internal and external sources that might
of other risks and from taking complex business signal reputational issues
decisions. However, we view our reputation as one of
our most valuable assets, as risks facing our
reputation may affect our ability to conduct core * Sustain corporate responsibility and ethics through
business operations transparent reporting and compliance with global best
practices (e.g. GHG emissions, UN Global Compact)
* Strengthening communication and corporate affairs
capabilities
* Sustained corporate social responsibility activities
that are aligned across the Group
* Establishing partnerships and programmes to limit
misuse of Hikma products
------------------------------------------------------------------ ------------------------------------------------------------
(1) Core results are presented to show the underlying
performance of the Group, excluding amortisation of intangible
assets other than software and the exceptional items set out in
note 4
(2) Earnings before interest, tax, depreciation and amortisation
and other exceptional items set out in note 4
(3) Constant currency numbers in H1 2017 represent reported H1
2017 numbers re-stated using average exchange rates in H1 2016. A
summary of the exchange rates used is provided on page 10
(4) Including all dosage forms and strengths, across all
markets
(5) On 30 June 2017, the Egyptian pound had devalued against the
US dollar from its peg of 8.8 EGP:USD prior to 3 November 2016 to
18.1 EGP:USD (source: Central Bank of Egypt)
(6) The agreement does not include the Egyptian market for
Alogliptin
(7) With the exception of Saudi Arabia, UAE and Egypt
(8) In H1 2016, exceptional items comprised acquisition,
integration and other costs of $39 million, the net gain on
divestment of certain legacy Generics products of $18 million and
the release of a contingent liability of $4 million. Further
details of the exceptional items are provided in note 4
(9) Products are defined as pharmaceutical compounds sold by the
Group. New compounds are defined as pharmaceutical compounds being
introduced for the first time during the period and existing
compounds being introduced into a new segment. We are presenting
details of the Group's product portfolio and pipeline to provide
additional information in respect of the size and make-up of the
marketed portfolio which is generating revenue and the pipeline
opportunity which will drive future revenue growth
(10) Group working capital days are calculated as Group
receivable days plus Group inventory days, less Group payable days.
Group receivable days are calculated as Group trade receivables x
365, divided by trailing 12 months Group revenue. Group inventory
days are calculated as Group inventory x 365, divided by trailing
12 months Group cost of sales. Group payable days are calculated as
Group trade payables x 365, divided by trailing 12 months Group
cost of sales. We believe Group working capital days provides a
useful measure of the Group's working capital management and
liquidity
(11) Group net debt is calculated as Group total debt less Group
total cash. Group total debt excludes co-development agreements and
contingent liabilities. We believe Group net debt is a useful
measure of the strength of the Group's financing position
(12) Exchange rates are sourced from the Central Bank of the
relevant country for the Algerian dinar, Egyptian pound, Moroccan
dirham, Sudanese Pound and Tunisian dinar and from Bloomberg for
the Euro, British pound and Japanese yen
INDEPENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC
Report on the consolidated interim financial statements
Our conclusion
We have reviewed Hikma Pharmaceuticals PLC's consolidated
interim financial statements (the "interim financial statements")
in the Press Release of Hikma Pharmaceuticals PLC for the six month
period ended 30 June 2017. Based on our review, nothing has come to
our attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the consolidated balance sheet as at 30 June 2017;
-- the consolidated income statement and consolidated statement
of comprehensive income for the period then ended;
-- the consolidated statement of cash flow for the period then ended;
-- the consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Press Release
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and as issued by the International Accounting
Standards Board and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and as issued by the
International Accounting Standards Board.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the Directors
The Press Release, including the interim financial statements,
is the responsibility of, and has been approved by, the Directors.
The Directors are responsible for preparing the Press Release in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Press Release based on our review. This
report, including the conclusion, has been prepared for and only
for the company for the purpose of complying with the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Press
Release and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
16 August 2017
(a) The maintenance and integrity of the Hikma Pharmaceuticals
PLC website is the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the consolidated interim
financial statements since they were initially presented on the
website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of interim financial statements may differ from
legislation in other jurisdictions.
Hikma Pharmaceuticals PLC
Consolidated income statement
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
and and and
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
Note $m $m $m $m $m $m $m $m $m
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited) (Audited)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Continuing
operations
Revenue 3 895 - 895 882 - 882 1,950 - 1,950
Cost of sales 3 (439) (2) (441) (433) (24) (457) (932) (32) (964)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Gross profit 456 (2) 454 449 (24) 425 1,018 (32) 986
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Sales and
marketing
expenses (92) (25) (117) (88) (18) (106) (184) (37) (221)
General and
administrative
expenses (106) (1) (107) (95) (35) (130) (208) (36) (244)
Research and
development
expenses (60) (3) (63) (57) - (57) (126) (24) (150)
Other operating
expenses (net) (22) (32) (54) (33) 22 (11) (81) 12 (69)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Total operating
expenses (280) (61) (341) (273) (31) (304) (599) (85) (684)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Operating
profit 3 176 (63) 113 176 (55) 121 419 (117) 302
Finance income 2 29 31 2 - 2 3 9 12
Finance expense (30) (14) (44) (31) (9) (40) (63) (41) (104)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Profit before
tax 148 (48) 100 147 (64) 83 359 (149) 210
Tax 5 (38) 8 (30) (37) 13 (24) (80) 28 (52)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Profit for
the period/year 110 (40) 70 110 (51) 59 279 (121) 158
============ ============ ============ ============ ============ ============ ========== ============ ==========
Attributable
to:
Non-controlling
interests 1 - 1 1 - 1 3 - 3
Equity holders
of the parent 109 (40) 69 109 (51) 58 276 (121) 155
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
110 (40) 70 110 (51) 59 279 (121) 158
============ ============ ============ ============ ============ ============ ========== ============ ==========
Earnings per
share (cents)
Basic 7 45.4 28.8 48.2 25.7 118.5 66.5
Diluted 7 45.2 28.6 47.8 25.4 117.9 66.2
On this page and throughout this interim financial information
"H1 2017" refers to the six months ended 30 June 2017, "H1 2016"
refers to the six months ended 30 June 2016 and "FY 2016" refers to
the year ended 31 December 2016.
Hikma Pharmaceuticals PLC
Consolidated statement of comprehensive income
H1 H1 FY
2017 2016 2016
$m $m $m
(Unaudited) (Unaudited) (Audited)
------------ ------------ ----------
Profit for the period/year 70 59 158
Other Comprehensive Income
Items that may be reclassified
subsequently to the income
statement, net of tax:
Effect of change in investment
designated at fair value 1 1 1
Exchange difference on translation
of foreign operations 19 (16) (90)
------------ ------------ ----------
Total comprehensive income
for the period/year 90 44 69
============ ============ ==========
Attributable to:
Non-controlling interests 1 - -
Equity holders of the parent 89 44 69
------------ ------------ ----------
90 44 69
============ ============ ==========
Hikma Pharmaceuticals PLC
Consolidated balance sheet
30 June 30 June 31 December
2017 2016 2016
$m $m $m
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Note
Non-current assets
Goodwill 686 689 682
Other Intangible assets 1,000 1,070 1,037
Property, plant and equipment 982 982 969
Investment in associates and joint ventures 7 7 7
Deferred tax assets 183 128 172
Financial and other non-current assets 8 68 60 48
------------ ------------ ------------
2,926 2,936 2,915
------------ ------------ ------------
Current assets
Inventories 9 507 496 459
Income tax receivable 2 8 2
Trade and other receivables 10 669 671 759
Collateralised and restricted cash 3 6 7
Cash and cash equivalents 244 247 155
Other current assets 11 41 139 66
------------ ------------ ------------
1,466 1,567 1,448
------------ ------------ ------------
Total assets 4,392 4,503 4,363
============ ============ ============
Current liabilities
Bank overdrafts and loans 14 111 158 117
Trade and other payables 12 327 322 343
Income tax provision 89 86 112
Other provisions 27 28 27
Other current liabilities 13 218 272 319
------------ ------------ ------------
772 866 918
------------ ------------ ------------
Net current assets 694 701 530
------------ ------------ ------------
Non-current liabilities
Long-term financial debts 14 747 892 721
Obligations under finance leases 21 21 21
Deferred tax liabilities 16 34 15
Other non-current liabilities 15 384 290 277
------------ ------------ ------------
1,168 1,237 1,034
------------ ------------ ------------
Total liabilities 1,940 2,103 1,952
============ ============ ============
Net assets 2,452 2,400 2,411
============ ============ ============
Equity
Share capital 40 40 40
Share premium 282 282 282
Own shares (1) (1) (1)
Other reserves 2,119 2,064 2,075
------------ ------------ ------------
Equity attributable to equity holders of the parent 2,440 2,385 2,396
Non-controlling interests 12 15 15
------------ ------------ ------------
Total equity 2,452 2,400 2,411
------------ ------------ ------------
Hikma Pharmaceuticals PLC
Consolidated statement of changes in equity
Merger Translation Retained Total Share Share Own Total Non-controlling Total
and reserves earnings reserves capital premium shares equity interests equity
Revaluation attributable
reserves to equity
shareholders
of the
parent
$m $m $m $m $m $m $m $m $m $m
Balance
at 1 January
2016
(Audited) 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
Profit for
the period - - 58 58 - - - 58 1 59
Effect of
change in
investment
designated
at fair
value - - 1 1 - - - 1 - 1
Currency
translation
loss - (15) - (15) - - - (15) (1) (16)
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Total
comprehensive
income for
the period - (15) 59 44 - - - 44 - 44
Total
transactions
with
owners,
recognised
directly
in equity
Issue of
equity shares
for
acquisition
of a subsidiary 1,039 - - 1,039 5 - - 1,044 - 1,044
Cost of
equity-settled
employee
share schemes - - 10 10 - - - 10 - 10
Dividends
on ordinary
shares (note
6) - - (50) (50) - - - (50) (1) (51)
Acquisition
of subsidiaries - - - - - - - - 1 1
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Balance
at 30 June
2016
(Unaudited) 1,077 (176) 1,163 2,064 40 282 (1) 2,385 15 2,400
============ ============ ========= ========= ======== ======== ======= ============= ================ =======
Balance
at 1 January
2016
(Audited) 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
Profit for
the year - - 155 155 - - - 155 3 158
Effect of
change in
investment
designated
at fair
value - - 1 1 - - - 1 - 1
Currency
translation
loss - (87) - (87) - - - (87) (3) (90)
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Total
comprehensive
income for
the year - (87) 156 69 - - - 69 - 69
Total
transactions
with
owners,
recognised
directly
in equity
Issue of
equity shares
for
acquisition
of a subsidiary 1,039 - - 1,039 5 - - 1,044 - 1,044
Cost of
equity-settled
employee
share schemes - - 22 22 - - - 22 - 22
Deferred
tax arising
on
share-based
payments - - 1 1 - - - 1 - 1
Dividends
on ordinary
shares (note
6) - - (77) (77) - - - (77) (1) (78)
Acquisition
of subsidiaries - - - - - - - - 1 1
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Balance
at 31
December
2016 (Audited) 1,077 (248) 1,246 2,075 40 282 (1) 2,396 15 2,411
============ ============ ========= ========= ======== ======== ======= ============= ================ =======
Profit for
the period - - 69 69 - - - 69 1 70
Effect of
change in
investment
designated
at fair
value - - 1 1 - - - 1 - 1
Currency
translation
gain - 19 - 19 - - - 19 - 19
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Total
comprehensive
income for
the period - 19 70 89 - - - 89 1 90
Total
transactions
with
owners,
recognised
directly
in equity
Cost of
equity-settled
employee
share schemes - - 12 12 - - - 12 - 12
Dividends
on ordinary
shares (note
6) - - (53) (53) - - - (53) (2) (55)
Adjustment
arising
from
change in
non-controlling
Interests* - - (4) (4) - - - (4) (2) (6)
------------ ------------ --------- --------- -------- -------- ------- ------------- ---------------- -------
Balance
at 30 June
2017
(Unaudited) 1,077 (229) 1,271 2,119 40 282 (1) 2,440 12 2,452
============ ============ ========= ========= ======== ======== ======= ============= ================ =======
* During the period, the Group acquired the remaining stake in
Ibn Al Baytar bringing the total ownership to 100%. This was
completed in April 2017.
Hikma Pharmaceuticals PLC
Consolidated cash flow statement
H1 H1 FY
2017 2016 2016
Note $m $m $m
(Unaudited) (Unaudited) (Audited)
============ ============ ==========
Net cash from operating activities 16 225 99 293
Investing activities
Purchases of property, plant and equipment (47) (55) (122)
Proceeds from disposal of property, plant and equipment - - 1
Purchase of intangible assets (28) (42) (68)
Proceeds from disposal of intangible assets - 23 24
Investment in financial and other non-current assets - (11) (11)
Investment in available-for-sale investments (2) - (6)
Acquisition of business undertakings, net of cash acquired* 1 (597) (515)
Finance income 1 1 2
============ ============ ==========
Net cash used in investing activities (75) (681) (695)
Financing activities
Decrease/(increase) in collateralised and restricted cash 4 1 (4)
Proceeds from issue of long-term financial debts 85 334 471
Repayment of long-term financial debts (60) (24) (326)
Proceeds from short-term borrowings 236 215 345
Repayment of short-term borrowings (242) (168) (337)
Dividends paid (53) (50) (77)
Dividends paid to non-controlling shareholders of subsidiaries (2) (1) (1)
Interest paid (27) (30) (54)
Purchase of non-controlling interest in subsidiary (6) - -
Proceeds from co-development and earnout payment agreement, net 2 3 2
============ ============ ==========
Net cash (used in)/ generated from financing activities (63) 280 19
Net increase / (decrease) in cash and cash equivalents 87 (302) (383)
Cash and cash equivalents at beginning of period/year 155 553 553
Foreign exchange translation movements 2 (4) (15)
============ ============ ==========
Cash and cash equivalents at end of period/year 244 247 155
============ ============ ==========
*During the period, the Group received a $1 million payment from
Boehringer Ingelheim in respect of the price adjustment receivable
related to the West-Ward Columbus acquisition.
HIKMA PHARMACEUTICALS PLC
Notes to the interim financial statements
1. General information
These consolidated interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31
December 2016, which were prepared under International Financial
Reporting Standards (IFRSs) issued by the International Accounting
Standards Board and IFRS as adopted by the EU, have been filed with
the Registrar of Companies. The auditor's report on those accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain any statement under Section 498 (2) or
(3) of the Companies Act 2006.
The consolidated interim financial statements for the six months
to 30 June 2017, with comparative figures for the six months to 30
June 2016, are unaudited and do not constitute statutory accounts.
However, the auditors, PricewaterhouseCoopers LLP, have carried out
a review of the consolidated interim financial statements and their
report is set out in the Independent review report.
2. Accounting policies
The unaudited consolidated interim financial statements for the
six months ended 30 June 2017 has been prepared using the same
accounting policies and on a basis, consistent with the audited
financial statements of Hikma Pharmaceuticals PLC (the 'Group') for
the year ended 31 December 2016.
Basis of preparation
The currency used in the preparation of the accompanying
consolidated interim financial statements is the US Dollar ($) as
the majority of the Group's business is conducted in US
Dollars.
These consolidated interim financial statements for the six
months ended 30 June 2017 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, "Interim financial reporting", as
adopted by the European Union and as issued by the International
Accounting Standards Board (IASB). The consolidated interim
financial statements should be read in conjunction with the annual
financial statements for the year ended 31 December 2016, which
have been prepared in accordance with IFRSs issued by the
International Accounting Standards Board (IASB) and the IFRSs
adopted by the European Union.
Taxes on income for interim periods are accrued using the
effective tax rate that would be applicable to expected total
annual earnings. Discrete items are taxed within the period in
which they are expected to arise, at the applicable tax rate.
The same accounting policies, presentation and method of
computation are followed in the consolidated interim financial
statements as were applied in the Group's latest annual audited
financial statements. There have been no changes to the accounting
standards in the current year that have materially impacted the
Group financial statements.
Adoption of new and revised standards
The following new and revised Standards and Interpretations have
been adopted in the current year. Their adoption has not had any
significant impact on the amounts reported in these financial
statements, however, may impact the accounting for future
transactions and arrangements.
IAS 7 (Amendments) Statement of cash flows on disclosure
initiative
------------------- --------------------------------------
The following Standards and Interpretations have not been
applied in these interim financial statements because while in
issue, are not yet effective (and in some cases had not yet been
adopted by the EU):
IFRS 9 Financial Instruments
--------------------- ---------------------------------------
IFRS 15 Revenue from contracts with customers
--------------------- ---------------------------------------
IFRS 15 (Amendments) Revenue from contracts with customers
--------------------- ---------------------------------------
IFRS 40 (Amendments) Investment Property
--------------------- ---------------------------------------
IFRS 4 (Amendments) Insurance contracts
--------------------- ---------------------------------------
IFRS 16 Leases
--------------------- ---------------------------------------
IFRS 2 (Amendments) Share based payments
--------------------- ---------------------------------------
IFRIC 22 Foreign currency transactions
and advance considerations
--------------------- ---------------------------------------
IFRIC 23 Uncertainty over income tax treatments
--------------------- ---------------------------------------
IFRS 17 Insurance contracts
--------------------- ---------------------------------------
Annual improvements
2014-2016
--------------------- ---------------------------------------
IFRS 9 will impact both the measurement and disclosure of
financial instruments, IFRS 15 may have an impact on revenue
recognition and related disclosure, and IFRS 16 will impact leased
assets and financial liabilities and related disclosures.
During H1 2017, the Group started the process of assessing the
impact of the first-time application of IFRS 9 (Financial
instruments) and IFRS 15 (Revenue from contracts with customers).
As of the reporting date, the process is still ongoing; until the
detailed review is completed, the Directors could not provide a
reasonable estimate of a definite effect of these standards on the
financial statements of the Group in future periods.
Accounting estimates
The preparation of the interim financial statements requires
management to make judgments, estimates and assumptions that affect
the application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates.
In preparing these consolidated interim financial statements,
the significant judgments made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements for the year ended 31 December 2016.
Going concern
The Directors have considered the going concern position of the
Company during the period and at the period end as they have in
previous years. The Directors believe that the Group is well
diversified due to its geographic spread, product diversity and
large customer and supplier base. The Group operates in the
relatively defensive generic pharmaceuticals industry, which the
Directors expect to be less affected by economic downturns compared
to other industries.
The Group's overall net debt position was $633 million (30 June
2016: $819 million and 31 December 2016: $697 million). Net cash
from operating activities in H1 2017 was $225 million (H1 2016: $99
million and FY 2016: $293 million). The Group has $1,067 million
(30 June 2016: $1,015 million and 31 December 2016: $1,109 million)
of undrawn short term and long term banking facilities, in addition
to $217 million (30 June 2016: $173 million and 31 December 2016:
$180 million) of unutilised import and export financing limits.
These facilities are well diversified across the subsidiaries of
the Group and are with a number of financial institutions. The
Group's forecasts, taking into account reasonable possible changes
in trading performance, facility renewal sensitivities, maturities
of long-term debt and the purchase of West-Ward Columbus, show that
the Group should be able to operate well within the levels of its
facilities and their related covenants.
After making enquiries, the Directors believe that the Group is
adequately placed to manage its business and financing risks
successfully despite the current uncertain economic and political
outlook. Having reassessed the principal risks, the Directors
considered it appropriate to adopt the going concern basis of
accounting in preparing the interim financial information.
3. Business and geographical segments
For management purposes, the Group is organised into three
principal operating divisions - Injectables, Generics and Branded.
These divisions are the basis on which the Group reports its
segmental information.
Operating profit, defined as segment result, is the principal
measure used in the decision-making and resource allocation process
of the chief operating decision maker, who is the Group's Chief
Executive Officer.
Information regarding the Group's operating segments is reported
below.
The following is an analysis of the Group's revenue and results
by reportable segment:
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
(Unaudited) and (Unaudited) (Unaudited) and (Unaudited) (Audited) and (Audited)
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
(Unaudited) (Unaudited) (Audited)
Injectables
$m $m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Revenue 362 - 362 357 - 357 781 - 781
Cost of
sales (134) - (134) (132) - (132) (276) - (276)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Gross profit 228 - 228 225 - 225 505 - 505
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Total
operating
expenses (84) (10) (94) (79) (2) (81) (165) (28) (193)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Segment
result 144 (10) 134 146 (2) 144 340 (28) 312
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
(Unaudited) and (Unaudited) (Unaudited) and (Unaudited) (Audited) and (Audited)
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
(Unaudited) (Unaudited) (Audited)
Generics
$m $m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Revenue 305 - 305 257 - 257 604 - 604
Cost of
sales (184) (2) (186) (168) (24) (192) (376) (32) (408)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Gross
profit 121 (2) 119 89 (24) 65 228 (32) 196
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Total
operating
expenses (100) (47) (147) (81) 7 (74) (193) (17) (210)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Segment
result 21 (49) (28) 8 (17) (9) 35 (49) (14)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
The Generics segment includes the results of the West-Ward
Columbus business.
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
(Unaudited) and (Unaudited) (Unaudited) and (Unaudited) (Audited) and (Audited)
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
(Unaudited) (Unaudited) (Audited)
Branded
$m $m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Revenue 223 - 223 264 - 264 556 - 556
Cost of
sales (118) - (118) (130) - (130) (274) - (274)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Gross
profit 105 - 105 134 - 134 282 - 282
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Total
operating
expenses (64) (4) (68) (79) (4) (83) (170) (8) (178)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Segment
result 41 (4) 37 55 (4) 51 112 (8) 104
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
(Unaudited) and (Unaudited) (Unaudited) and (Unaudited) (Audited) and (Audited)
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
(Unaudited) (Unaudited) (Audited)
Others
$m $m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Revenue 5 - 5 4 - 4 9 - 9
Cost of
sales (3) - (3) (3) - (3) (6) - (6)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Gross
profit 2 - 2 1 - 1 3 - 3
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Total
operating
expenses (3) - (3) (1) - (1) (5) - (5)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Segment
result (1) - (1) - - - (2) - (2)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
'Others' mainly comprise Arab Medical Containers LLC,
International Pharmaceutical Research Center LLC, Hikma Emerging
Markets and Asia Pacific FZ LLC, and the chemicals division of
Hikma Pharmaceuticals LLC (Jordan).
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
(Unaudited) and (Unaudited) (Unaudited) and (Unaudited) (Audited) and (Audited)
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
(Unaudited) (Unaudited) (Audited)
Group
$m $m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Segment result 205 (63) 142 210 (24) 186 485 (85) 400
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Unallocated
expenses (29) - (29) (34) (31) (65) (66) (32) (98)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Operating
profit 176 (63) 113 176 (55) 121 419 (117) 302
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Finance income 2 29 31 2 - 2 3 9 12
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Finance expense (30) (14) (44) (31) (9) (40) (63) (41) (104)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Profit before
tax 148 (48) 100 147 (64) 83 359 (149) 210
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Tax (38) 8 (30) (37) 13 (24) (80) 28 (52)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Profit for
the period/year 110 (40) 70 110 (51) 59 279 (121) 158
============ ============ ============ ============ ============ ============ ========== ============ ==========
Attributable
to:
Non-controlling
interests 1 - 1 1 - 1 3 - 3
Equity holders
of the parent 109 (40) 69 109 (51) 58 276 (121) 155
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
110 (40) 70 110 (51) 59 279 (121) 158
============ ============ ============ ============ ============ ============ ========== ============ ==========
Unallocated corporate expenses mainly comprise employee costs,
third party professional fees, travel expenses and donations (H1
2016 and FY 2016 comprise of employee costs, third party
professional fees, travel expenses, donations, and
acquisition-related expenses).
The following table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
H1 2017 H1 2016 FY 2016
$m $m $m
----------- ----------- ---------
(Unaudited) (Unaudited) (Audited)
----------- ----------- ---------
United States 586 529 1,211
Middle East and North Africa 256 304 641
Europe and Rest of the World 51 47 95
United Kingdom 2 2 3
----------- ----------- ---------
895 882 1,950
=========== =========== =========
The top selling markets were as below:
H1 2017 H1 2016 FY 2016
$m $m $m
----------- ----------- ---------
(Unaudited) (Unaudited) (Audited)
----------- ----------- ---------
United States 586 529 1,211
Saudi Arabia 57 64 143
Algeria 40 57 115
683 650 1,469
=========== =========== =========
Included in revenue arising from the Generics and Injectables
segments is revenue of approximately $127 million (H1 2016: $123
million and FY 2016: $253 million) which arose from the Group's
largest customer which is located in the United States.
4. Exceptional items and other adjustments
Exceptional items are disclosed separately in the consolidated
income statement to assist in the understanding of the Group's core
performance.
H1 2017 H1 2016 FY
2016
$m $m $m
(Unaudited) (Unaudited) (Audited)
------------ ------------ ----------
Exceptional items
Acquisition, integration and other
costs (4) (39) (41)
Gain from sale of assets, net - 18 18
Inventory-related adjustments - (20) (27)
Release of contingent liability - 4 4
Impairment of property plant and
equipment - - (10)
Impairment of product-related
intangible assets (35) - (6)
Write- down of product-related
intangible assets - - (18)
------------ ------------ ----------
Exceptional items included in
operating profit (39) (37) (80)
Other adjustments
Intangible amortisation other
than software (24) (18) (37)
Remeasurement of contingent consideration,
financial liability and assets,
net 15 (9) (32)
* Finance expense (14) (9) (41)
* Finance income 29 - 9
------------ ------------ ----------
Exceptional items and other adjustments (48) (64) (149)
Tax effect 8 13 28
------------ ------------ ----------
Impact on profit for the period/year (40) (51) (121)
============ ============ ==========
Exceptional items
-- Acquisition, integration and other related costs primarily
comprise of severance costs in relation to the West-Ward Columbus
acquisition. These costs are included within the overhead, general
and administrative, sales and marketing, and research and
development expenses.
-- Impairment of product-related intangible assets is mainly
related to acquired products at West-Ward Columbus and is included
within other operating expenses.
During H1 2017, certain triggering events had occurred and
required the Group to perform tests for impairment. Such events
included continued pricing pressure, and increased competition on a
number of products (including delays in product launches) resulting
in a reduced forecast of future net cash inflows compared to
previous forecasts. The Group recorded impairment charges using a
value in use model in the income statement for the six months ended
30 June 2017.
The calculation of the recoverable amount was determined using
discounted cash flow projections based on financial forecasts. The
significant impairment charges recorded during the first half of
2017 and the resulting carrying values subsequent to the impairment
charges were as follows:
Impairment Carrying
value as
at 30 June
2017
$m $m
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
Product Pipeline 32 49
Key assumptions of the model are as follows:
- Discount rate: 14.5%
- Operational cost savings, based on actual costs through 30
June 2017 in comparison to forecast; and
- Estimated future product cash flows, including price and volume assumptions.
Changes in any of the key assumptions would result in changes to
the impairment charge booked by the Group.
In previous periods, exceptional items were related to the
following:
-- Acquisition, integration and other related costs were
incurred in relation to the acquisition of West-Ward Columbus which
was completed on 29 February 2016. Acquisition-related expenses
were included within unallocated corporate expenses, while
integration and other expenses were included within general and
administrative expense and cost of sales respectively.
-- Acquisition-related expenses mainly comprised third party
consulting services, legal and professional fees, and other costs
represent severance and retention payments paid.
-- Gain from sale of assets related to the divestiture of
certain products and was included within other operating
income.
-- Inventory-related adjustments reflected the amortisation of
the fair value uplift of the inventory acquired as part of the
West-Ward Columbus acquisition and were included within cost of
sales.
-- Release of contingent liability was due to not achieving
certain performance-related milestones in respect of a previous
acquisition and was included within other operating income.
-- Impairment of property, plant and equipment related to the
write-off of machinery and equipment as a result of a previous
acquisition and was included within other operating expenses.
-- Impairment of product-related intangible assets was included
within research and development expenses.
-- Write-down of product-related intangible assets related to
the write-down of certain R&D elements associated with the
co-development agreements entered into with third parties since
2011 and was included within research and development expenses.
Other adjustments:
Remeasurement of contingent consideration, financial liabilities
and assets represents the net difference resulting from the
revaluation of the liabilities and assets associated with the
future contingent payments and receivables in respect of the
West-Ward Columbus acquisition, and of the financial liability in
relation to the co-development earnout payment agreement. The
remeasurement is included in finance expense/income.
5. Tax
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
and and and
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
$m $m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited) (Audited)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Current tax
Foreign tax 42 (2) 40 47 (13) 34 143 (28) 115
Adjustments
to prior
year 1 - 1 2 - 2 2 - 2
Deferred tax
Current year (5) (6) (11) (12) - (12) (57) - (57)
Adjustments
to prior
year - - - - - - (8) - (8)
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
38 (8) 30 37 (13) 24 80 (28) 52
============ ============ ============ ============ ============ ============ ========== ============ ==========
The Group incurred a tax expense of $30 million (H1 2016: $24
million; FY 2016: $52 million). The reported effective tax rate for
the period is 30.0% (H1 2016: 28.9%; FY 2016: 24.8%). The increase
in the reported effective tax rate is due to the geographic profit
mix during the period.
The application of tax law and practice is subject to some
uncertainty and amounts are provided where the likelihood of a cash
outflow is probable.
6. Dividends
H1 2017 H1 2016 FY
2016
$m $m $m
------------ ------------ ----------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ----------
Amounts recognised as distributions
to equity holders in the period/years:
Final dividend for the year ended
31 December 2016 of 22.0 cents
(2015: 21.0 cents) per share 53 50 51
Interim dividend for the year ended
31 December 2016 of 11.0 cents
per share - - 26
------------ ------------ ----------
53 50 77
------------ ------------ ----------
The proposed interim dividend for the period ended 30 June 2017
is 11.0 cents (30 June 2016: 11.0 cents and 31 December 2016 final
dividend: 22.0 cents) per share.
The proposed interim dividend will be paid on 22 September 2017
to eligible shareholders on the register at the close of business
on 25 August 2017. The ex-dividend date is 24 August 2017 and the
final date for currency elections is 8 September 2017.
Based on the number of shares in issue at 30 June 2017 of
(240,647,229), the unrecognised liability is $26 million.
7. Earnings per share
Earnings per share is calculated by dividing the profit
attributable to equity holders of the parent by the weighted
average number of ordinary shares. The number of ordinary shares
used for the basic and diluted calculations is shown in the table
below. Core basic earnings per share and core diluted earnings per
share are intended to highlight the core results of the Group
before exceptional items and other adjustments.
A reconciliation of the reported and core earnings used is also
set out below:
H1 H1 H1 H1 H1 H1 FY FY FY
2017 2017 2017 2016 2016 2016 2016 2016 2016
Core Exceptional Reported Core Exceptional Reported Core Exceptional Reported
results items results results items results results items results
(Unaudited) and (Unaudited) (Unaudited) and (Unaudited) (Audited) and (Audited)
other other other
adjustments adjustments adjustments
(note (note (note
4) 4) 4)
(Unaudited) (Unaudited) (Audited)
$m $m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ----------
Earnings for
the purposes
of
basic and
diluted
earnings
per
share being
net profit
attributable
to equity
holders of
the parent 109 (40) 69 109 (51) 58 276 (121) 155
============ ============ ============ ============ ============ ============ ========== ============ ==========
Number Number Number
Number of shares 'm 'm 'm
Weighted average number of ordinary
shares for the purposes of basic
earnings per share 240 226 233
Effect of dilutive potential ordinary
shares:
Share-based awards 1 2 1
--------------------------------------- ------- ------- -------
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 241 228 234
--------------------------------------- ------- ------- -------
H1 H1 H1 H1 FY FY
2017 2017 2016 2016 2016 2016
Core Reported Core Reported Core Reported
earnings earnings earnings earnings earnings earnings
per per per per per per
share share share share share share
Cents Cents Cents Cents Cents Cents
---------- ---------- ---------- ---------- ---------- ----------
Basic 45.4 28.8 48.2 25.7 118.5 66.5
---------- ---------- ---------- ---------- ---------- ----------
Diluted 45.2 28.6 47.8 25.4 117.9 66.2
---------- ---------- ---------- ---------- ---------- ----------
8. Financial and other non-current assets
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Price adjustment receivable 22 6 3
Available-for-sale investments 9 1 7
Other non-current assets 37 53 38
------------ ------------ ------------
68 60 48
------------ ------------ ------------
Price adjustment receivable represents the non-current portion
of the contingent receivable in relation to the West-Ward Columbus
acquisition whereby as part of the acquisition, the Group will be
reimbursed for certain contingent payments in respect of milestones
and other conditions based on future events.
During the period, the Group received $1 million reimbursement
(H1 2016: $nil and FY 2016: $82 million) in cash. As at 30 June
2017, the balance was adjusted to reflect the present value of the
expected receivables balance and the difference is presented as a
finance income.
Available-for-sale investments include investments of $8 million
in three venture capital companies through the Group's venture
capital arm "Hikma International Ventures Developments LLC".
Other non-current assets mainly represent advance payments made
to acquire inventory from a third party. As of 30 June 2016, the
balance included payments related to both inventory and
product-related technologies whereby any payments related to
product-related technologies have been reclassified to intangible
assets, while any payments related to inventory received were
reclassified to inventory.
9. Inventories
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Finished goods 154 158 120
Work-in-progress 74 63 73
Raw and packing materials 244 238 229
Goods in transit 14 19 18
Spare parts 21 18 19
------------ ------------ ------------
507 496 459
============ ============ ============
10. Trade and other receivables
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Trade receivables 579 590 699
Prepayments 52 55 40
Other receivables 24 13 4
VAT and sales tax recoverable 11 10 14
Employee advances 3 3 2
------------ ------------ ------------
669 671 759
============ ============ ============
The fair values of receivables are estimated to be equal to the
carrying amounts.
11. Other current assets
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Price adjustment receivable 16 113 34
Investment designated at fair
value 21 21 20
Others 4 5 12
41 139 66
============ ============ ============
Price adjustment receivable: In respect to note 8, this
represents the current portion of the contingent receivable in
relation to the West-Ward Columbus acquisition.
Investment designated at fair value: represents the agreement
the Group entered into with an asset management firm in 2015 to
manage a $20 million portfolio of underlying debt instruments. The
investment comprises a portfolio of assets that are managed by an
asset manager and is measured at fair value; any changes in fair
value go through other comprehensive income. This asset is
classified as level 1 as it uses quoted prices in active
markets.
12. Trade and other payables
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Trade payables 191 180 172
Accrued expenses 124 127 157
Other payables 12 15 14
------------ ------------ ------------
327 322 343
============ ============ ============
The fair values of payables are estimated to be equal to the
carrying amounts.
Other payables principally comprise of employees' provident fund
liability of $4 million (30 June 2016: $6 million, 31 December
2016: $5 million), which mainly represents the outstanding
contributions to the Hikma Pharmaceuticals Ltd (Jordan) retirement
benefit plan, on which the fund receives 3.5% interest.
13. Other current liabilities
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Deferred revenue 7 13 13
Return and free goods provision 130 112 109
Co-development and earnout payment 4 8 4
Contingent consideration and
liability - 66 123
Finance lease obligation 1 1 1
Others 76 72 69
------------ ------------ ------------
218 272 319
============ ============ ============
Return and free goods provision: The Group allows customers to
return products within a specified period prior to and subsequent
to the expiration date.
Free goods are issued to customers as sale incentives,
reimbursement of agreed upon expenses incurred by the customer or
as compensation for expired or returned goods.
Co-development and earnout payment agreement: This liability
mainly relates to the present value of future payments on a
co--development and earnout agreement. As part of this agreement,
milestone payments dependent on successful clinical development of
defined products are received by the Group. In return of receiving
such milestone payments, the Group has agreed to pay the
contracting party a certain percentage of future sales of those
products. As at 30 June 2017, the liability associated with these
earnout payments was adjusted to reflect the present value of the
expected future cash outflows and the difference is presented as a
finance expense/income. The current portion of the balance is $4
million (30 June 2016: $8 million and 31 December 2016: $4
million).
Contingent consideration and liability: This liability
represents the current portion of the Group's contractual
contingent consideration and liabilities in relation to the
West-Ward Columbus acquisition, whereby as part of the acquisition
the Group has contractual liabilities to make payments to a third
party in the form of milestone payments that are dependent on the
achievement of certain US FDA approval milestones; and royalty
payments based on future sales of certain products that are
currently under development.
During the period, the Group paid a total of $nil (H1 2016: $nil
and FY 2016: $20 million) in respect to the contingent
consideration and of $nil (H1 2016: $nil and FY 2016: $10 million)
for the contingent liability.
The current portion of the balance is $nil (30 June 2016: $54
million and 31 December 2016: $93 million) related to the
contingent consideration and $nil (30 June 2016: $12 million and 31
December 2016: $30 million) related to the acquired opening balance
sheet contingent liability whereby the majority of the balance was
reclassified to the non-current liabilities following a delay in
certain product launches.
Others: These mainly include indirect rebate liabilities across
the Group.
14. Current and non-current financial debts
Short-term financial debts
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Bank overdrafts 14 15 10
Import and export financing 62 83 63
Short-term loans - 5 -
Current portion of long-term
loans 35 55 44
111 158 117
============ ============ ============
Import and export financing represents short-term financing for
the ordinary trading activities of the Group.
Long-term financial debts
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Long-term loans 286 452 270
Long-term borrowings (Eurobond) 496 495 495
Less: current portion of long-term
loans (35) (55) (44)
------------ ------------ ------------
Long-term financial loans 747 892 721
============ ============ ============
Breakdown by maturity:
Within one year 35 55 44
In the second year 201 39 29
In the third year 526 314 171
In the fourth year 10 528 519
In the fifth year 2 10 2
Thereafter 8 1 -
------------ ------------ ------------
782 947 765
============ ============ ============
The loans are held at amortised cost.
Included in the table above are the following major arrangements
entered into by the Group:
a) A $500 million (with fair value of $496 million) 4.25%
Eurobond due in April 2020 with the rating of (BB+/Ba1). The
proceeds were used to refinance existing debt and to finance part
of the cash consideration of the West-Ward Columbus
acquisition.
b) A syndicated revolving credit facility of $1,175 million was
entered into on 27 October 2015. The facility has an outstanding
balance of $175 million at 30 June 2017 (with a fair value of $175
million) and a $1,000 million unused available limit. The facility
matures on 24 December 2019 and can be used for general corporate
purposes. Proceeds of $175 million were used mainly to finance part
of the cash consideration of the West-Ward Columbus
acquisition.
c) A nine-year $110 million loan from the International Finance
Corporation (IFC) was entered into on 19 December 2011. The loan
has an outstanding balance of $64 million at June 30 2017 (with a
fair value of $63 million) and no unutilised limit. Quarterly equal
repayments of the term loan commenced on 15 November 2013 and will
continue until 15 August 2020. The loan has been used to finance
acquisitions in the MENA region and MENA's capital expenditure.
15. Other non-current liabilities
30 June 30 June 31 December
2017 2016 2016
$m $m $m
------------ ------------ ------------
(Unaudited) (Unaudited) (Audited)
------------ ------------ ------------
Contingent consideration and
liability 336 252 226
Supply manufacturing agreement 33 20 33
Co-development and earnout payment
agreement 11 17 14
Others 4 1 4
384 290 277
============ ============ ============
Contingent consideration and liability: In respect to note 13,
the non-current portion of the balance is $227 million (30 June
2016: $154 million and 31 December 2016: $146 million) related to
the contingent consideration and another $109 million (30 June
2016: $98 million and 31 December 2016: $80 million) related to the
acquired opening balance sheet contingent liability.
Supply manufacturing agreement: As part of the acquisition of
West-Ward Columbus, the Group entered into supply and manufacturing
contracts with the seller, Boehringer Ingelheim.
Co-development and earnout payment agreement: In respect of note
13, the non-current portion of the balance is $11 million (30 June
2016: $17 million and 31 December 2016: $14 million).
16. Net cash from operating activities
H1 2017 H1 2016 FY 2016
$m $m $m
(Unaudited) (Unaudited) (Audited)
------------ ------------ ----------
Profit before tax 100 83 210
Adjustments for:
Depreciation, amortisation,
impairment and write-down
of:
Property, plant and equipment 37 32 78
Intangible assets 64 21 68
Loss on disposal of property, 1
plant and equipment - -
Gain on disposal of intangible
assets (note 4) - (17) (18)
Movement on provisions - - (1)
Cost of equity-settled employee
share scheme 12 10 22
Finance income (31) (2) (12)
Interest and bank charges 44 40 102
Foreign exchange (gain)/loss* (2) - 19
Release of contingent liability - - (4)
------------ ------------ ----------
Cash flow before working capital 225 167 464
Change in trade and other receivables 90 (26) (128)
Change in other current assets 5 (2) 1
Change in inventories (41) (55) (32)
Change in trade and other payables (10) 20 46
Change in other current liabilities 21 25 15
Change in other non-current
liabilities (2) - 3
------------ ------------ ----------
Cash generated by operations 288 129 369
Income tax paid (63) (30) (76)
------------ ------------ ----------
Net cash from operating activities 225 99 293
============ ============ ==========
* The presentation of H1 2017 and FY 2016 shows the foreign
exchange (gain)/loss as a separate line item. We have not restated
the H1 2016 comparatives in this respect as the amount was
immaterial and embedded in the net cash generated from operating
activities.
17. Fair value of financial assets and liabilities
The fair value of financial assets and liabilities is included
at the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced
or liquidation sale. Management classifies items that are
recognised at fair value based on the level of inputs used in their
fair value determination as described below:
-- Level 1: Quoted prices in active markets for identical assets
or liabilities
-- Level 2: Inputs that are observable for the asset or
liability
-- Level 3: Inputs that are not based on observable market
data
The Group has the following Level 1 financial assets and
liabilities;
-- Investment designated at fair value (note 11).
-- A $500 million Eurobond (note 14).
The Group has the following level 3 financial assets and
liabilities;
Contingent consideration and receivables (notes 13 and 11). The
amounts related to the acquired opening balance sheet contingent
liability are measured at cost and are not level 3 financial
liabilities so are excluded from the analysis below.
-- Co-development and earnout payment agreement (note 13).
There was no transfer in/out of categories and levels during the
periods ended 30 June 2017, 30 June 2016, and the year ended 31
December 2016.
The following table presents the changes in Level 3 items for
the periods ended 30 June 2017, 30 June 2016, and the year ended 31
December 2016:
Financial Financial
asset liability
Balance at 1 January 2016 (Audited) - 25
Additions - 3
Release - (4)
Received / settlement - (21)
Acquisition of subsidiaries 118 220
Remeasurement through income statement
(note 4) 1 10
---------- -----------
Balance at 30 June 2016 (Unaudited) 119 233
========== ===========
Balance at 1 January 2016 (Audited) - 25
Additions - 5
Release - (4)
Received / settlement (82) (23)
Acquisition of subsidiaries 118 220
Remeasurement through income statement
(note 4) 2 34
---------- -----------
Balance at 31 December 2016 (Audited) 38 257
========== ===========
Balance at 31 December 2016 (Audited) 38 257
Additions - -
Settlement (1) (1)
Remeasurement through income statement
(note 4) 1 (14)
---------- -----------
Balance at 30 June 2017 (Unaudited) 38 242
========== ===========
Financial liability related to the co-development and earn out
payment - the key input of the financial liabilities is dependent
on the net revenue from the sale of products, which are subject to
an aggregate cap of $200 million.
The key input of the contingent consideration is the expected
cash inflows, milestones, and approvals of certain products valued
using a Monte Carlo analysis.
If expected cash flows were 10% higher or lower, the fair value
of both the contingent consideration and the financial liability at
profit or loss will increase/decrease by $17 million.
18. Related party balances
No significant transactions between the Group and its associates
and other related parties were undertaken during the period.
Any transactions between the Company and its subsidiaries have
been eliminated on consolidation.
19. Contingent liabilities and receivables
Contingent liabilities
A contingent liability existed at the balance sheet date in
respect of external guarantees and letters of credit totalling $46
million (30 June 2016: $54 million and 31 December 2016: $49
million).
Other contingent liabilities:
The promotion, marketing and sale of pharmaceutical products and
medical devices is highly regulated and the operations of market
participants, such as Hikma, are closely supervised by regulatory
authorities and law enforcement agencies, including the FDA and the
US Department of Justice. As a result, the Group is subject to
certain investigations by governmental agencies, as well as other
various legal proceedings considered typical to its business
relating to employment, product liability and commercial
disputes.
Contingent receivable
Under the agreement to acquire West-Ward Columbus, Hikma is
entitled to reimbursement of $30 million from the seller if certain
regulatory conditions exist at 24 December 2017. Such contingent
asset will be recognised if and when such asset is virtually
certain to be received.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGGDIIDBBGRR
(END) Dow Jones Newswires
August 17, 2017 02:01 ET (06:01 GMT)
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